Borenstein: West Contra Costa school district fails to disclose true cost of bonds

By Daniel BorensteinMediaNews columnist

Posted:
03/26/2010 11:45:39 AM PDT

Updated:
03/26/2010 03:27:50 PM PDT

AS WEST CONTRA Costa school officials push yet another school construction bond proposal, they need to come clean about how property tax rates are increasing far beyond expectations to cover payments for four previous voter-approved measures.

Instead, the ballot language of Measure D, a $380 million bond plan on the June 8 ballot, makes no mention of the cost of the $785 million of bonds sold by the district since 1998. In essence, voters are being asked to sign up for a new charge card while ignoring the balances and growing installment payments of the other four in their wallets.

Indeed, the cost of those previously approved bonds is rapidly increasing. The owner of a house in West Contra Costa with an assessed value of $500,000 paid $615 toward bond payments in the 2008-09 fiscal year. By 2010-11, that's expected to increase to $955. If voters approve Measure D, the annual payments would reach $1,195 in 2010-11, or nearly double what they were two years earlier. Those payments will appear as extra charges on residents' property tax bills.

In addition to covering the bond debt, district homeowners also pay for a $72-per-year parcel tax for maintenance and improvements to school grounds and recreation facilities. They also pay a surcharge of 7.2 cents per square foot, or $108 for a 1,500-square-foot home, for educational programs; teacher and counselor salaries; supporting libraries, computer training and athletic programs; and reduced class size.

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You won't find any of those fees mentioned in the district description of the upcoming bond measure. Here are more figures you won't find in the ballot information: If the district sells all the bonds that are already approved, they will cost district taxpayers nearly $2 billion in principal and interest. If voters approve Measure D, the liability will increase to nearly $3 billion.

I raised the issue of the district's increasing cumulative bond costs in a column last year. I called for more disclosure, something the district chose to ignore when it placed Measure D on the ballot. I never dreamed that the district would try to go back to the well so soon. After all, as of last year, no other K-12 district in the state except San Diego and Los Angeles had issued as many school construction bonds in the previous decade as West Contra Costa.

Under the school district's four previously approved bond measures, it has the authority from voters to issue $890 million of bonds for school construction. Thus far, the district has only sold $785 million. Currently, the bond payments stretch through 2035, but refinancing and sale of more bonds could extend the payment schedule beyond that. If Measure D passes, property owners will be paying off bonds through at least 2048.

Last year, after analyzing district data, I warned that property owners would see sharp increases in tax rates as the cumulative effect of the four previously approved bond measures were felt. Now, new data from the district reveals that the rate increases will be even more.

Taxes to pay off the bonds are based on the assessed valuation of property. Property owners were charged $123 per $100,000 assessed valuation in 2008-09 to cover the payments on outstanding bonds. The district data last year indicated that would rise to a peak of $166 per $100,000 in 2010-11 before slowly declining.

The updated data provides a much worse picture. The payments for the four previously approved bond measures are now expected to reach $191 per $100,000 in 2010-11, stay in that range for several years, and peak at $194 in 2016-17 before starting to decline.

That doesn't include the potential additional cost of Measure D. The new bond measure would bring the total to $239 per $100,000 in 2010-11, and keep it at that level until 2016-17, when it would begin to decline.

The sharp increase in the tax rate can be blamed in large part on the downturn in the housing market. The district's plans for paying off its bonds originally assumed a 6 percent annual increase in the tax base, the total assessed valuation of property in the district. Instead the district is now predicting a two-year decline of 18 percent. The lower the tax base, the higher the rate the district must charge each homeowner to raise enough money to pay off the bonds.

How the increased tax rate affects each property depends on when the house was last sold. Generally speaking, the downturn in the housing market means that longtime property owners will see an increase in the total amount they pay for school bonds each year, while owners of recently purchased homes could experience a decrease.

If the housing market continues to stall, district homeowners will be paying an even higher tax rate in coming years. The district's latest forecasts assume the property tax base will return to an annual 6 percent growth rate starting in 2012-13. If it doesn't reach that, property owners will face even higher tax rates.

Housing market forces aside, there's another factor that could alter the district's tax base. Chevron, the largest taxpayer in the school district, last year won an appeal on the assessed value of its Richmond refinery for the 2004-06 tax years. The company is also appealing its assessment for the following three years.

As a result of Chevron's victory for 2004-06, the West County school district owes the company a $1.7 million refund for overpayment toward the bond program. School officials are just beginning to analyze the implications of that. They don't know how much more individual property owners will have to pay to make up the lost revenue from 2004-06 or possibly for future years. But, clearly, if Chevron doesn't back down, other taxpayers will be on the hook for the bond payments.

For some reason, none of those warnings can be found in the Measure D ballot material the school district is putting before voters. So much for full disclosure.